Canada Emergency Business Account (CEBA) is a $40,000 interest free loan from the government offered to small businesses. Applications for CEBA became available as early as April 09, 2020 at most major banks and eventually the credit unions joined in as well.

While it is a great program, my biggest complain is that it excludes some well deserving businesses just because they did not issue any T4s in 2019. So if your business did not have employees but had sub-contractors and you issued them T4As then you are out of luck. Or if you were a shareholder – employee of your corporation and paid yourself dividends and issued yourself a T5 then you are also out of luck. Do you think its unfair? Then please make sure you reach out to your local MP and make some noise to get this changed.

Here are some details if you are planning on applying

CEBA promises to provide a $40,000 loan (in form of a line of credit):

-at 0% interest until December 31, 2022

-requires no minimum monthly principal payments until December 31, 2022

-principal repayments can be made at any time

-$10,000 loan forgiveness is available provided outstanding balance is fully paid on or before December 31, 2022.

Small businesses and not-for-profits, that meet each of the following criteria will be eligible:

-must be a business (i.e., not a holding company) in operation on March 1, 2020.

-must demonstrate that you paid between $20,000 to $1.5 million in total payroll in 2019.

-must agree to use the funds from this loan to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance and property tax.

-must have an active business operating account and the account must have been opened prior to March 1, 2020.

To apply, please DO NOT go to your local branch.  You must apply online through your online business banking site.

Once you receive the funds, please ensure that you are using the funds as prescribed by CRA. The funds from this loan shall only be used to pay non-deferrable operating expenses including, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service.

 

It cannot be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

 

My recommendation would be to move the $40,000 into a separate bank account and pay the non-deferrable operating expenses directly from there. That way if and when CRA audits how the funds were used, we would have no difficulty providing the audit trail.

 

Please do not forget that repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25% (up to $10,000).

 

Feel free to refer to CRA’s link on CEBA. https://ceba-cuec.ca/